Mei applied for a loan with the lender in June 2017 to buy a car. Mei was receiving a benefit at the time and her bank statements showed minimal expenses.
The lender agreed to loan Mei $20,000. Mei used the loan to buy a 2010 hatchback.
The lender’s standard practice is to install immobilizing devices in their borrowers’ cars. Immobilizing devices allow the lender to disable a borrower’s car remotely if the borrower’s loan repayments are overdue. When Mei signed the loan agreement, Mei acknowledged that she understood that the lender would activate the immobilizer if her repayments were overdue. The lender was required to text Mei both three and six days after her payment was due. If the lender had not received Mei’s payment on day seven, they told Mei they would activate the immobilizer.
Mei missed a loan repayment in August 2017. The lender texted Mei on both day three and day six to tell her that they would activate the immobilizer after seven days of non-payment. The lender activated the immobilizer on day seven. Mei was not able to start her car. Mei called the lender to ask them to turn her car back on so that she could drive home. The lender disabled the immobilizer for an hour so that Mei could drive home.
In October 2017, the lender sent Mei a repossession warning. Mei agreed to a repayment arrangement with the lender to clear the arrears on her account. Mei missed a loan repayment in December. The lender activated the immobilizer nine days later after sending Mei three warnings. Mei contacted the lender once her car had been immobilized and the lender disabled the immobilizer temporarily.
The lender sent Mei another repossession warning in November 2017. Mei had not cleared the arrears on her account after fifteen days, so the lender repossessed her car in December 2017.
The lender sold Mei’s car to a wrecker in January 2018 for $3,500.
Mei complained to FSCL in July 2023. Mei was being treated for a serious medical condition when she brought her complaint to us.
Dispute
Mei said:
- the lending was irresponsible, because she was receiving a benefit at the time
- the lender did not give her enough notice before activating the immobilizer
- her car sold was sold for much less than it was worth
- she was not allowed to collect her belongings from the car before it was sold
The lender said:
- Mei had a budget surplus of $300 per week at the time she applied for the loan. The lender had no reason to expect Mei would suffer substantial hardship because of her loan repayments
- they contacted Mei as required under the loan agreement each time she missed a repayment
Review
Responsible lending
We reviewed the lender’s affordability assessment and Mei’s bank statements at the time she took out the loan. We used reasonable estimates for expenses that did not appear on Mei’s bank statements.
We found that the lender’s affordability assessment was reasonable. We could not consider the lending irresponsible just because Mei was receiving a benefit at the time. We found that Mei had a budget surplus sufficient to make her loan repayments.
Immobilizer
The lender’s records showed that they had contacted Mei as required by the loan agreement both times the immobilizer was activated. On both occasions, the lender told Mei the overdue amount and warned her that they would activate the immobilizer. The lender also disabled the immobilizer to allow Mei to move her car both times.
Selling the car
Mei bought the car for $20,000. It was sold to a wrecker six months later for $3,500.
The lender had a duty to get the best sale price reasonably obtainable for Mei’s car. This means that the lender needed to choose an appropriate method of marketing and sale that was likely to result in a sale price at or near market value for Mei’s car.
The lender did not provide any information about how they marketed or sold Mei’s car, other than that it was sold to an auto wrecker in an auction.
We did not think that it was appropriate for the lender to sell Mei’s car to a wrecker unless the car was only fit to be scrapped, which was not the case. We also found that the market value of cars of a similar make, model, age, and with similar mileage to Mei’s had a market value much higher than $3,500.
Repossession
The lender did not respond to Mei’s concerns about the repossession of her car. We accepted Mei’s view.
Resolution
We encouraged the lender to make a reasonable settlement offer to Mei. We advised the lender to reduce Mei’s loan balance by an amount equal to the difference between the price Mei’s car was sold for, and its market value at the time of sale. This would have reduced Mei’s loan balance by $11,000.
The lender considered Mei’s vulnerability and offered to waive her loan balance. Mei accepted the lender’s settlement offer. We thought that the lender’s offer was a great resolution for Mei.
Insights for participants
Lenders must make sure they meet their duty to obtain the best price reasonably available when selling items that they have repossessed.
We encourage lenders to take a pragmatic approach to resolving complaints, especially where the complainant is vulnerable. It is often more practical to make a fair settlement offer early in the process, rather than going through a full investigation.
